rchegos Capital Management and Total Return Swaps

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TRS

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Bill Hwang, a former hedge fund manager, launched a family office called Archegos Capital

Management

$($

Archegos

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$$managing significant wealth, in an effort to capitalize on market

opportunities using leveraged positions and complex derivatives. One derivative he used

was total return swap

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TRS

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$,$

$$with which he indirectly invested in the U

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S

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$$stock market.

The TRS contracts significantly increased Archegos

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$$risk exposure with financial leverage.

Things went well at first and helped Bill Hwang accumulate huge wealth. However, as

market dynamics shifted and certain positions moved against Archegos, the veil of risk

that had been cast aside was suddenly unveiled. In March

$2$

$0$

$2$

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$$the financial market was

shaken by the spectacular downfall of Archegos. According to Bloomberg estimates,

Archegos lost U

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$$$

$2$

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$$billion in only

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$$days$,$ and this might be the largest individual loss

in

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$$days in financial history. This also caused its lenders to lose tens of billions.

The following questions require you to undertake research into this event and total return

swaps

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TRS

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$,$

$$then answer the following questions. Provide references

$1$

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$1$

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$$What is a Total Return Swap

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TRS

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$?$

$$Briefly explain how it works, especially in the

context of the Archegos case.